The Prof G Pod with Scott Galloway - Is It Time to Remember the Metaverse? — with Matthew Ball

Episode Date: August 1, 2024

Matthew Ball, the CEO of Epyllion, a startup adviser, and the former Head of Strategy for Amazon Studios, joins Scott to discuss the updated version of his book, “The Metaverse: Building the Spatial Internet.” We hear where to be bullish, along with his thoughts on Starlink, streaming, and AI writ large. Follow Matthew, @ballmatthew.    Scott opens with his thoughts on the movie business, luxury, and the Olympics.  Algebra of Happiness™: step-parents are underrated.  Subscribe to No Mercy / No Malice Buy "The Algebra of Wealth," out now. Follow the podcast across socials @profgpod: Instagram Threads X Reddit Learn more about your ad choices. Visit podcastchoices.com/adchoices

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NMLS 1617539. Episode 310. 310 is the area code belonging to los angeles county in 1910 the first public radio broadcast was conducted from the metropolitan opera house in new york city having sex with me is like the opera no one has any idea what the fuck is going on and at the end there's a fat guy sweating and yelling go, go! That's just too easy. There's just too many jokes about Scout Leader Patrick. And the bottom line is, I was a Boy Scout, and it was one of the nicest experiences I had as a kid. The Boy Scouts have taken an immense amount of shit. It is a wonderful organization, or I should say it was a wonderful organization for me. I was raised by a single mother, and every Wednesday night, she would drop me off at, I think it was a junior high school in Culver City. I was troop 42. I was a wee below. I was a Boy Scout. And then there's a transition period. It's like puberty scouts where you're a

wee below and you wear a different scarf. And true story, I used to wear my Boy Scout uniform to school, including in junior high, which was just such a big hit with the ladies and the cool crowd. It really sort of established my social currency showing up in my Boy Scout uniform. But they were really good people. The crew, if you will, everyone needs to find their crew. And Boy Scouts for me was a group of kids who maybe weren't the coolest, so to speak, maybe weren't the most social, maybe weren't the most athletic, but wanted to find their own crew. We used to go camping once a month outside of L.A. County. It gave me an appreciation

for nature, leadership. The scout leaders there were incredibly generous and thoughtful and nice. And we used to have to do things like plan out your backpack. And I used to do that with my mom. And then at the end of the weekend of camping, we would go through, we'd make these lines and make sure that there was absolutely no sign of us that we had been at that campsite. And we used to study for and take tests for our merit badges, fire safety and not tying. By the way, both those things have come in real handy for me. I had a joke all lined up, as you can imagine, incredibly crude and inappropriate. And then I thought about just how wonderful the Boy Scouts were to me. Anyways, so again, welcome to the 310th

episode. In today's episode, we speak with Matthew Ball, the CEO of Apelion, a startup advisor and the former head of strategy for Amazon Studios. Matthew has sort of, not sort of, Matthew's developed a following just because he's got such a big fucking brain about tech, and he speaks in sort of this almost like you're asking ChatGPT a question, except it comes back not with an anodyne answer, but with a really thoughtful, nuanced answer. He reminds me a little bit of Josh Wolfe, because Josh Wolfe has one of those brains that's just like, you know, I'm on a 286 Intel and he's on a Pentium or a GPU. And they have different styles, but they're both these incredibly bright people who have this incredible range around technology. And I had not heard of Matthew, and then I interviewed him, and I immediately went on YouTube and found out this is going to be a resource for me around any question I have around technology. Okay, before we get to that, let's bring all of this back to our favorite subject, me.

I am an Aspen, and I absolutely love it here. I used to come here in the winter. Now we only come in the summers. My strategy is the following. I'm pretty much taking not all but most of my money, and I'm buying these beautiful places around the world where I hope my sons will just find irresistible and will come spend a lot of time with me.

In addition, I'm going after a 0.1% strategy. I think it's terrible, and I'll fight it, but I think it's going to happen. I think income inequality is only going to get worse around the world. And what's interesting about people, I find it interesting, is that the poor and the middle class are much more interesting in the sense that they're much more heterogeneous. If you look at their apparel they wear, if you look at their culture, their food, it's pretty local. So the middle class and lower income people in France dress French, eat French food, vacation in French places global consumers. There's the wealthy person who buys the same products and has the same experiences. And then there's teenagers.

That's also a global cohort. They listen to Taylor Swift and wear Nike. Actually, they're wearing Adidas recently, or Hoka, or On. Nike's really shit the bed lately. But those are the two cohorts that have emerged globally until about 20 years ago. Another cohort emerged globally, and that is the tech buyer. That is the MIS, or the head of operations, typically are the same person who went to the same schools

and buy the same products. So what do we have here? We have the emergence of global brands that typically are in one of three categories. Technology, Microsoft, and NVIDIA are global brands. Brands that target teens, C-Above, Adidas, or even the North Face. And then brands that target the very wealthy, Almond Hotels or Chanel. Anyways, fascinating. Total right turn from what the script is here. And my producer is just sort of sitting there shaking her head like, what the fuck is he doing now? Anyways, I also saw last weekend, and I was super excited about this, got tickets, took my kids and their friends to see Deadpool and Wolverine.

I think it's called Deadpool and Wolverine. Anyways, and it amassed $205 million in domestic ticket sales during its opening weekend, the most money this year, and a historic record for an R-rated film. Hmm. Wow. Didn't know that. I loved it, by the way. I absolutely love the one-liners. I think Ryan Reynolds is incredibly talented. Actually, so is Hugh Jackman. They're both crazy fucking talented. Hugh Jackman can sing like no one's business.

What was that movie, The Great Entertainer, where he played Barnum or Bailey or whatever it was, and Zendaya was in that movie. God, watching Zendaya. Who knew Zach Braff could sing? Did you know that? I did not know that Zach Braff could sing. That was an outstanding movie. I think musicals are especially impressive. That's got to be really hard to pull off. Anyways, absolutely love Deadpool, but I'm struck a little bit. One, Hollywood will pretend that the movie business is back. It's not. It's still off 20% from its pre-pandemic levels. And I think the majority of the interesting content now is on the medium or the small screen, specifically your television or your phone. Why is that? Because the type of money that's required to make a feature motion picture is so extraordinary now that everybody just goes to these tentpole franchises. I mean, I think this is the third or the fourth Deadpool movie. And there's not as much what I call

license for creative content. And I even think about what are the franchises that have been launched in the last few years that'll get three or four sequels, maybe Frozen. I don't know, there's probably something else. But my son at camp just went and saw Minions 4 or Minions 5. I mean, there just isn't, there isn't a ton of originality, whereas when I tune in, I'm about people around a career in media, is the return on your invested capital is going to be inversely correlated to the size of the screen. And if you want to be on the screen, everyone's like, well, I'll start doing cute little videos, but then hopefully I'll get a TV show.

And then who knows, I'll hit the big time with a big and be on the big screen so I can see my face really, really fucking big. So there's a certain prestige or a vanity aspect or a psycho, if you will, or a psychic return. What is really interesting or I find interesting is I get 20 to 30 emails a day asking for advice. And it's wonderful that people would reach out to me. It's also a little bit frustrating because I think that this is a really thoughtful email from someone who's very sincere and I can never get to all of them. By the way, if you're out there, I apologize. I just can't get to all of them. But I'm increasingly, over the last two years, getting a lot of emails from people in the media industry asking what do they do next,

that they say, I've been very critical of the writer's strike. I thought that was literally like the head up your ass shit for brains. I don't understand strategy negotiation of the ages. And I've said all along that this industry attracts way too much human capital. There's 180,000 people in SAG-AFTRA. There should probably be 10,000. And as evidence of that, 83% of them didn't qualify for health insurance last year because they made less than $23,000. I want to crush your dreams. If you want to go into a vanity industry, fine. You want to go into modeling, fashion, sports. You want your own jewelry design level. You want to be a fashion designer. I mean, seriously, you know if you're trying to go into modeling, fashion, sports. You want your own jewelry design level. You want to be a fashion designer. I mean, seriously, you know if you're trying to go into a vanity industry.

That's fine. But you have to set up guideposts for yourself or metrics that if you're not in the top 10% pretty quickly, you should get out. The quote unquote top 10%, if you're in the 90th percentile of actors, that means you're an Uber driver. If you're in the 99th percentile, that means you make a living, not even a great living. I know some actors who you would all know, you think, wow, they've been in series. They make a good living, not a great living. Unless you're in the 0.1%, it is a very difficult way to make a living. Whereas most industries, the non-romance industries, just be in the top half and you can make a decent living. And if you're in the top 10%, much less the top 1%, boy, oh boy, are you going to kill it. But anyways, back to

Deadpool and Wolverine. What else is popping off the screen? What are we watching? The Olympics. Who would have thunk it? I didn't even know the Olympics were on. And my feeds on my platforms are all these amazing people doing amazing things. By the way, by the way, speaking of opening ceremonies at the Olympics, I love Celine Dion. I did not know this. I did not know this. I see her visage, her image, and I think, oh God, lame Canadian, lame Canadian coming my way. And then within about 15 seconds, I'm thinking, wow, she's pretty good. And then within 30 seconds, I'm fucking crying. Wow, is she talented.

And by the way, France, Parisians, oh my gosh. Generally speaking, a group of very disagreeable people. I used to go to France a lot for business. My company L2 focused on luxury brands. The home of luxury is France. I used to go to Paris, no joke, focused on luxury brands. The home of luxury is France. I used to go to Paris, no joke, have a series of meetings with everyone from LVMH to Chanel to Clarins, just a ton of brands, right? Dior, Chloe. We would spend a week and have jam-packed.

And almost every meeting I'd come out of, I'd think, Jesus Christ, that was a shitty meeting. Basically, French people who would cross their arms, we would say something and they would argue with us and then speak to each other in French in these disdainful tones, like, who is this stupid fucking American? And we'd be on the way to the airport, and I would say to my colleague, I always went with the same people, usually, who were covering Europe without reason or luxury. I'm like, God, that was just the worst meeting I've ever had. And then I'm not exaggerating. We'd get a call from the client saying, that was amazing. We want to see you again. They just have a different mentality. Also, people will say that Parisians are different than the French, but I have come to appreciate one thing or more than one thing about France. There is something in the DNA of the French. There's something in the water where they have an easier time crafting the most beautiful things in the world. If you just look at the panache, the style, the touch points of the Olympics and the opening ceremonies, I think, wow, I wish I was there. Actually, I invited the Olympics, and I said to my kids, do you want to go to the Olympics? Because I thought, got to take your kids to the Olympics at least once. And they said, no, we have no interest. And it struck me that the World Cup has become so dominant the last 40 years, and slowly but surely, the Olympics have actually decreased in popularity. Although from a business standpoint, it seems to be enjoying a little bit of a bump.

In April, NBCU had already sold more than $1.2 billion in advertising for this year's games. That's a record for Olympic ad spending. A lot of this should be adjusted for inflation, because I think a lot of these numbers are a little bit, I don't know exactly, a lot of this doesn't feel apples to apples. Anyways, back to the Olympics. The other thing that's really struck me about the Olympics is you can get is the difference between streaming and broadcast or linear. Watching the Olympics, I find, on NBC is actually a quite frustrating experience because they say, and now we're headed to three-meter diving. You're like, well, I'm not sure I'm into three-meter diving. Whereas if you watch it on Peacock, you can actually sign up and pick a sport.

So if you just really want to see surfing all day long, you can watch it. Speaking of streaming, it is beginning to kind of consolidate, if you will. So there's this great chart from Antenna looking at committed versus curious. And that is people who are just trying it versus the people who are committed customers. And it's interesting. You would expect Netflix to be at the top, and their ratio is two-thirds to one-third. So two-thirds of people are committed. One-third are curious. I think curious is a polite way of saying people who might churn out, who sign up to download all of Ted Lasso and then churn out. Next,

and this really shocked me, was Hulu at a ratio of 35 to 65. So if you want to think about a market capitalization or a dominant player, Netflix is two to one, basically hardcore customers who will likely renew versus the next player, which is one to two, which has got to dramatically impact margins because Hulu has to reinvent its customer base every goddamn 18 months.

Paramount Plus comes in about the same level at 36, 64. Disney is 40, 60, so more committed. Paramount Plus comes in about the same level at $36.64. Disney is $40.60, so more committed. Peacock is at $35. Max is at $28. That really shocked me. I always think of Max and specifically HBO as having been able to tap into the zeitgeist. And Apple TV Plus, who I think has spent $20 billion so far on programming for Apple,

TV Plus for their effort here is $32.68. I wonder if they kind of regret it. I wonder if Apple TV Plus is not nearly the kind of, I don't know, train wreck that the mixed reality headset is. But I wonder if they had to do it again if they would spend $20 billion on original scripted drama. Anyways, the market continues to consolidate. I am loving the Olympics.

But also what I found is I'm spending most of my time watching it on TikTok. But I love the idea of amateur athletes. Things have happened since the Olympics over the last 20 years or 30 years that make me wonder if why it has not done as well. Is it because professional athletes are involved? I don't know. Is it because they've brought in things like, I don't know, mountain biking, which I think is important to establish a younger customer base, but does it lose the purity? But more than anything, and our editor-in-chief pointed this out, Jason Stavers, I think the key to a luxury brand going back to France and luxury brand is the following. It's scarcity. It's the illusion that you are part of a tribe that says something about you. It's self-expressive benefit. Actually, there are really two things that luxury offers, only two things. The first is it makes you feel closer to God. Why? Because the majority of these very artisanal, handcrafted, elusive

products were the domain of religious institutions. The religious elites figured out a way that they needed to manipulate the masses and make them feel like we are closer to God and you need to do what we tell you to do and also to provide them with comfort. to God and you need to do what we tell you to do and also to provide them with comfort. So what we're going to do is we're going to invite you to these places of worship, these temples, these mosques, these churches, these chapels, and we're going to fill them with the most beautiful things in the world. We're going to engage the most incredible, sophisticated, impressive artisans to build frescoes on the ceiling. We're going to have incredible music. We're going to have the most gorgeous

pageantry and candles and smells. And you're going to get the sense that there's a decent chance that God hangs out here. And we've been doing this for hundreds, if not thousands of years. And as a result, we associate fine things, artisanal things with being closer to God. And when you see the mesh on a Bottega Veneta bag or the slope on the back of the 911, you feel closer to God. It stills you. It's a very rewarding experience to be in the company of this type of artisanship. In addition, the second thing is that it increases the likelihood you're going to procreate. Why? Because it says something about you. Ergonomically impossible Manolo Blahniks make your legs seem longer. This makes you seem more elegant, more feminine. Having a Panerai watch or a Porsche means your kids or the kids that you or mate and

you decide to have are more likely to survive than someone who is wearing a Swatch watch and driving a Hyundai. So it's the ultimate expressive, self-expressive benefit. And by the way, this has been the best performing asset class over the last 30 or 40 years, whether it's modern art or whether it's a luxury business itself. On a risk-adjusted basis, luxury has performed better than even, yes, you guessed it, tech. And it's produced, I think, the second or third most billionaires. This is an unbelievable business, and it has huge moats by virtue of the fact that it has heritage. You cannot recreate Chanel right now. You just can't.

You can't have that story. You can't have that heritage. And if you're able to establish that illusion of scarcity and artificially constrict supply, I go into at this? Hermes, who get this has double the market cap of Nike. Jesus Christ, that blows my mind. Anyways, the illusion of scarcity. Also the learning here, personally, there is the illusion of scarcity that you want to create. You wanna have boundaries. In my brand, I absolutely say no to 95%.

Now granted, I'm in a position of privilege, but creating a sense that your, I don't know, your brand or your person, if you will, has a touch of exclusivity to it once you've established some domain expertise and some credibility, I think it's key to creating margin, if you will. So it's the same way with a services company. Let me translate this to B2B. What do you do in B2B? In my opinion, what's the best way to market? You put out thought leadership, they get some awareness. With L2, we put out a ranking and you create a reverse inquiry model if you can. That way it changes the entire tone of the conversation, right? And you try and

create an illusion of scarcity that you're doing them a favor by them signing up as membership. The entire membership model in hospitality right now, whether it's Maison Estelle or Soho House or Casa Cipriani, that entire thing has just exploded, although I think it's probably saturated at this point. It's all based on the illusion of scarcity. Gee, can you recommend me so I can pay $7,000 a year to then go buy drinks at what is essentially a nice restaurant? This, again, is the master of illusion of scarcity. This is what has become of branding. The ultimate, ultimate rejectionist, exclusionary artisanal brand is U.S. higher education. To a certain extent, the U.S. has become a luxury brand because

of our fucked up immigration policies. But you get the point. Scarcity, luxury brands equals margin. And let's bring it home. Some wonderful moments from the Olympics. Simone Biles, Jesus Christ, that shit's just inspiring. She gets a lot of attention, so I'll move on. Two best friends from America, I think they're called Cookin'll move on. Two best friends from America, I think they're called Cookin' and Bacon, or best friends who've been going to the Olympics three or four times, or one just made her, like, fourth trial, finally made the Olympics, won a medal. That was a nice moment. The Philippines won its first gold medal. And finally, finally, there was a gymnast from North Korea who won a silver medal in the Olympics. She didn't win gold,

but her execution was flawless. Get it? Anyways, go Six Rings, the Olympics. She didn't win gold, but her execution was flawless. Get it? Anyways, go Six Rings, go Olympics. We'll be right back for our conversation with Matthew Ball, the CEO of Appelion and author of the revised book, The Metaverse, Building the Spatial Internet. Matthew, where does this podcast find you? In Midtown Manhattan. So let's bust right into it. You're one of the go-to experts on the metaverse, a topic we just haven't paid much attention to since some of the hype faded. Can you give us a state of play? Where does the metaverse and spatial computing stand today in 2024? So overall, those in the industry talk about these three different peaks for the theme. The first happened in the late 80s, the early 90s. That's where you had really all of

the terms that we talk about today. Spatial computing came onto the scene roughly 91, 92. The metaverse in 92. You had the advent of virtual reality, artificial reality, certainly cyberspace, the of 3D computing, simulation, and video games. And they all attempted to capture, these terms, what the future might look like. And we very quickly realized that those technologies were premature. 15 years later, we had this second burst of activity. Second Life ends up on the cover of Time magazine, and there's a belief that we're going to see the metaverse finally come to fruition. And in the following two to three years after that peak for Second Life, you have the starting of nearly all of the modern efforts to build wearable glasses and goggles. Magic Leap, you have the Snapchat acquisition of Vurgence Labs, you have HoloLens, you have

Oculus VR. And then we kind of encountered this 10 to 15 year stagnation in the hardware side. And then in 21 and 22, we had this other burst where there was general consensus that finally the technologies had matured, the internet infrastructure, computing technologies, even some of the wearables that we imagined we might one day wear, that they had all matured to the point in which finally this 30-year-old term, roughly 70-year-old conquest and 100-year-old idea was ready for primetime. And then it got hoisted onto the front page of the news by Mark Zuckerberg. So we had this long progress of technology and progress suddenly lead us to this belief that it was imminently here,

if not changing the world already. And so where are we in 2024? I think the focus on that hype, the name, and the relative unsuccess or general lack of success of MetaSuite, of Metaverse products, has led to a belief that the idea has come and gone, been duly rejected by consumers. But actually, the progress of all of the constituent parts has continued, not just with more child and leisure-oriented activities, Roblox and Fortnite, but indeed had mounted displays at large, general computing simulation, and the creation of virtual worlds using artificial intelligence. But now, that scrutiny has shifted elsewhere. So give us the textbook definition of the metaverse. What is the metaverse?

The best and easiest way to understand it is a 3D shared and live version of the internet. The internet as we have it today is best understood as a dozen or two common protocols and a suite of standards that enable the consistent, comprehensive, and coherent exchange of data across 110,000 autonomous and independent networks, hundreds of millions of different servers, billions of different devices supporting about 5 million applications, billions of websites, all exchanging information. And yet what that internet lacks is really three fundamental elements. First is the ability to transmit, again, coherently, comprehensively, and consistently 3D information for it to be shared. What you and I are doing right now, live Zoom, is essentially one of the few things we ever do on the internet that's truly

shared. And essentially everything that we do on the internet is not actually live. When you and I go to the NewYorkTimes.com, not only are we disconnected from the New York Times server, but even when the New York Times updates, we're still looking at the old version of it. And so the metaverse is best understood as a shared, live, and 3D augmentation to the existing internet as we experience it today. So technologies, generally speaking, everyone was happy to kind of pronounce crypto dead about a year ago, and it's come roaring back. Voice was super hyped. It's come down a bit. It might come back. This does feel as if it's been, I wouldn't say forgotten, but it feels like there probably is still some opportunity there. Where do you see the greatest opportunity? What industries do you think will register the greatest leverage or success around metaverse applications? this strong association with these technologies and their concepts with virtual reality or social workrooms that we would use to engage in lieu of a Zoom call or physical meeting. Most of the

pioneers in the category strongly separate the two. Some don't even believe that virtual reality has much of a future. Neil Stevenson, who coined the term, talks about it being central to his idea of the future in the 80s, but he has essentially disavowed the requirement of virtual reality or augmented reality from the metaverse. And when you go to some of the larger businesses in the category, whether that's of Epic Games or NVIDIA, they have no requirement nor expectation of a near-term solution for this hardware. But if you're going to talk about where we're seeing these imminent opportunities that are perhaps not covered extensively, I think there's two great examples. The first is in the use of actually these headsets in more industrial use cases. Four years ago, the United States performed its first ever live patient surgery using a mixed reality headset. The first was spinal fusion. The second was the removal of a cancerous tumor on a spinal column. The United States is now performing between 400 to 600 surgeries a year

using these devices. And the results, though preliminary, right, we haven't seen a decade of patient outcomes, do show that the surgeries are typically performed faster. They're more accurate. They are, in some instances, much cheaper. And most of the surgeons that perform this talk about it in the same way that they did GPS in the early 90s, a revolution in how they perform a relatively complex and yet routine process, and yet one in which we're still not able to do nearly what we can with the technology today that we imagined a few decades ago. It does feel like healthcare is an obvious example.

And so talk to me a little bit about gaming. I'm an investor. I made one of my largest investments about three years ago in Epic Games. So much of this is around syntax or nomenclature, because I think of Fortnite as the metaverse to a certain extent i don't i i'm trying to figure out where gaming and ends in the metaverse begins and yeah give me a sense for now speaking as a advise me as a shareholder of epic how the metaverse will impact gaming and who you see as sort of the winners in that space so you're right that a lot of this is a debate over

terminology in fact even spatial which apple has embraced, has its origins, as I mentioned, in the early 90s, but it was never contemplated to actually connect to the physical world. It was just a description of a 3D space in a computer. And so all of these terms, the metaverse included, have kind of been perverted, reapplied in scenarios it was originally not intended for and become a part of corporate propaganda, right? We're spatial, not metaverse. We're metaverse, not spatial. I interviewed Tim Sweeney, the founder and CEO of Epic recently, and he likened the metaverse to a stock price. He said, when something cool comes out, it goes up. When something lame comes out, it goes down. And more often than not over the last three years, lame things have come out. And certainly when you take a look at those leading use cases, Fortnite is one such example. They at least don't capture the pop culture imagination the way that it did three to four years ago. But it's a good way of understanding the proliferation of these technologies and trends. Roblox, as an example, it has an advantage over Epic, as you know,

as being on mobile, has about 375 million monthly active users. That's more than the entire active user base of the Switch platform, the Xbox platform, and the PlayStation platform. Nearly all of its users are under 18. And so you're seeing something that, despite being concentrated at a younger demo, is nevertheless larger than another category that spans all age demographics. The other interesting thing about that category is, of course, those younger users have no interest in the capital M, M word, its trends, its significance. It's just a form of habit and how they socialize. But when you talk

about the companies such as Epic, when people talk about the internet, the internet is in some regard, not unlike, you know, the constitution in the states in the sense that it was never meant to say static and yet it hasn't really been updated for several decades. The consensus is that the standards which would support a shared live 3D internet have to come from private business. And therefore, you need other private businesses to willingly adopt standards and technologies another entity owns and operates. And therefore, you need to trust Epic looks like through its strength of existing platform, its economic engine, and then its stewardship by a more philosophical controlling shareholder,

looks like one of the most likely entities to pioneer those changes. There's a chapter, I guess it's an updated chapter in your book, that explores the century-long history of AI and AI philosophy. And also the six ways this technology controls the metaverse. Walk us through those. So I think when you take a look at many of the technological impediments to building what many have imagined, whether that's a headset or just a digital twin, a persistent simulation of San Francisco as Tesla is now seeking to build, a lot of the time we are facing literal laws of physics constraints. That's actually why the Vision Pro is so expensive and yet so unrewarding for many users. And so we're now starting to see these different ways in which our dreams are being made real through AI. Number one is that when you take a look at an HMD,

head-mounted display like the Vision Pro, the best way to talk about what it can't do is to compare it to the device many of us have, a Xbox Series X, a PlayStation 5. Those are 10-pound devices. They're the size of two or three different shoeboxes. That's despite the fact they don't need a battery. That's despite the fact they don't need a screen. And yet they don't need a mobile connection. We don't worry about the heat that they generate too much because they're feet and feet away from you.

They don't need cameras to understand the world around you. And they don't need to take safety precautions, right, to understand that there's tax returns on the table or that you're about to stumble over an object. Shrinking a 10-pound, relatively underpowered device that doesn't need two of the heaviest things it can have, a screen and a battery, into something portable and wearable, we haven't found the science that would allow us to overcome those challenges. And yet through artificial intelligence, we are actually starting to kind of co-opt that system, right? We're starting to come up with smarter ways to have the system predict what you're going to do so that it doesn't have to process it.

That processing requires battery, for example. It requires tax on a limited GPU. In fact, when you're wearing a headset, one of the biggest challenges of just power reservation or preservation is when you see the Vision Pro, you're actually looking at a reproduction of the world around you from three to four different external cameras that have to be stitched together. But those cameras are actually captured about an inch and a half in front of your eyes and on an obtuse angle. It's artificial intelligence that is bringing all of those images together, shifting it back onto your eyes,

and then making it seem like it's coming from your eyes. So that's just one such example of literally if we want to have lightweight, portable devices that are comfortable, powerful, able to do what we want, it's actually not a question of lithium ion advances, not entirely. It's not about how many nanometers we have for how many different transistors. A lot of the time it's how much smarter our systems can be with scarce information. The two bigger elements are just about actually producing the world. There was a lot of scrutiny,

and I know you've covered this, around Galaxy's Edge at Disneyland. And as expensive as that was, it's shocking to most people to realize that the cost of making a virtual Galaxy's Edge is actually not necessarily less than it was to produce a physical theme park. And if you actually want to staff that

with individuals who can bring to life Naboo or Navarro or the planet of Hoth, it becomes more expensive still. And so with artificial intelligence, we're starting to see this reality that if you wanted to produce the Disneyland of your dreams, have it populated as you might imagine, and also allow you to do essentially everything that you would want to do and by extension can't do in a theme park. We're talking about billions of dollars in annual investment that is starting to shrink down into the hundreds of millions and where the cost curve might bring it even lower still. Something that I don't think gets enough attention is the application or applications of the metaverse and AI in terms of simulation or

its use on the battlefield. And you have a chapter on this. Give us a sense for where you think this intersects with military strategy. So the best way to do this is to talk about one of those terms that has kind of been forgotten and even Microsoft moved away from, which is digital twins. Digital twins a few years ago became so common because every company that felt obliged to have a quote-unquote metaverse strategy just said, let's make a digital twin. And they very quickly realized that, sure, it had some signaling value. They got their employees to feel good about it. They tested some new technology, but they realized they didn't really know what they were going to do with it. And one of the problems, and this comes back to AI, is there are really five different levels of digital twins that we talk about in the industry. And the

advanced ones require artificial intelligence. And most of them were level one. Level one is a digital twin. It's like a physical miniature. It's a model, a diorama. Teams feel good about them. Executives like having a diorama of their corporate campus, but it reflects a statement. It's a point in time, and it doesn't have much applied value. Level two digital twins take that original digital twin and they make them real-time. Using IoT and other simulated systems, you're now having a live reproduction of that environment. Level three are predictive digital twins. They can tell you what's likely to happen.

Level four are prescriptive. They provide actual recommendations to the individuals. And then level five, we talk about autonomous digital twins. Those that can produce prescriptions and predictions at such a high velocity that a human agent can't actually effectuate those changes effectively. So that's level one to five. And by three, four, five, we start to get actual utility, but we require high levels of accuracy, sophistication, and velocity from AI systems. We have two other axes. One is the volume of data. Obviously, you can have a digital twin that captures individual vehicles or fleets, and that's a very big distinction. And then we have the amount of other network digital twins you have. Are we talking about a factory plant or a McDonald's in Manhattan, or are we talking about how these technologies are being used today, in particular in battlefield testing, where you're saying we have all of these

systems that can today do a decent job of predicting and prescribing activities for a relatively stable system with relatively low cost of failure. And by that, I mean a production facility, pretty stable in what it's going to do. And the consequence of a line pause is real for General Motors or Tesla, but it's not life-threatening. There's still a belief that we don't have the level of prediction or prescription, let alone autonomy, to the UK is a pioneer here, is the use of this in active training, in better simulation of what may or may not go right or wrong. And in general, this connects to your earlier point, which is the technologies that are almost always used to actually test this, especially with human agents, is the unreal engine out of Epic. You also had an edition of the book where you're talking about big tech's fight over undersea cable infrastructure and starlink versus amazon's project kuiper i i'd

love just you have such a big brain around i don't even think of these as a metaverse guy i think it is more like kind of like the cutting edge tech guy i look at starlink and i see something that has the most the width of the amazon and that this thing could be potentially one of the most valuable companies in the world. And some of this is just, I've had such an incredible experience with a product when it's offered on planes. Talk to me about Starlink, if you agree that it's got that sort of potential and product excellence and moats, and who are the competitors and where are they relative to Starlink? So I love this question, and it actually gets to the earlier point around updating or supplementing the Internet Protocol Suite as we know it. There was a largely undercovered fight going on between the big giants to actually own the submarine cable infrastructure of the internet. Meta, as you called out, in 2018, they owned 0% of what we call the internet backbone, or the oceanic backbone. By the end of this year, the Free Internet Foundation estimates that Meta will own 12% to 13% or own, co-own, or be the capacity

owner, right? Essentially a leasehold like a wireless tower of all submarine cable infrastructure, about 170,000 kilometers of cable. They will own the cables that connect 47 to 55 different African continental countries. And it's believed that out of the 12 to 13 percent they own worldwide, 40 to 50 percent of all of the African continental internet infrastructure. That has led to additional escalation from Google and Amazon companies that were much farther ahead in purchasing and owning these fiber optic connections. When you talk about Starlink, you're again talking about another system that we don't have a traditional competition or comparison for, but is now roughly 70% of all low earth satellites that we have globally,

including all of those of China and NASA, where they're expected to put up another 12,000 in the next 12 months, up to 30,000 to 40,000 more. And the cost and velocity advantages they have over any other competitor is astonishing. And so I'll bring that back, which is you say, okay, so what's the challenge with updating the internet protocol suite? The challenge with the internet protocol suite is it's decentralized. No one mandates a protocol's adoption. We've proposed many. And so one classic example is the internet protocol suite does not differentiate between any packet of data. It doesn't know what's real time, you and I talking, and it doesn't know what's an email or Netflix stream. And so you and I may have our call dumped because there's congestion

in the network and a network hop just says, well, we've got to pick between these two. So let's dump Scott and Matt to let the email through, severing the connection, not just delaying ours. To get everyone to agree, you need 110,000 networks, millions and millions of different routers to all say, let's accept it. And there's no simple, let's classify this versus that, because all data has different demand needs. And so when you start to talk about the scope of Meta's ownership of cable infrastructure or Starlink, to have a private party that can forcibly or effectively produce new protocols that reshape how the internet manages and discriminates traffic. I'm not talking about net neutrality. I just mean like the fundamental understanding of data and routing to start to change the way the

most profound technology of the last 50 years operates in a way that at least in some regions of the world and potentially globally through Starlink, nothing else can even propose an alternative. And that's where you get into something truly remarkable. And that's a moat that would perhaps take 50 years to even try to chip away at. So you're bullish on Starlink? I think it's remarkably hard not to be. Yeah, that's my sense too. Okay, so Starlink, what other companies, when you look at how all the moons are converging or not converging here, what other companies are you especially optimistic about? So before I shifted over to interactivity and gaming at large, I was primarily focused on Hollywood and media. I

was the head of strategy for Amazon Studios, which ran at the time, essentially what users think of to be as prime video. And I'm very familiar with your perspective on generative AI. Look, I think that technology is remarkable. And I think you can kind of tell the general fears around that technology by how the criticisms have changed. A year and a half ago, it was the number of digits that were on a finger. Right now, most of the criticisms that I see are that it looks great, yes, but it doesn't is bad. It's not dramatic. And just the fact that we have gone from visual deformities to a normative sense of like taste is extraordinary. funny thing about that is to even believe that the visual presentation or the performance is flawed is to assume that there's a uniform human response to those things when we know that there isn't, which is to say an expert may say that doesn't land the way that cinema or Scorsese would, but that assumes that every viewer would. The pace in which that technology is improving is remarkable. I think the ethics of how a lot of the training data has been used are often reprehensible

or, at worst, willfully ignorant of the ramifications. But having gone through this firewave of virtual production and real-time production, which we realized was probably 10 to 15 years ahead of schedule. I think that we are very quickly coming to that fundamental change point for how generative AI is used in workflows for video game, for music, for cinema at large. And I use cinema deliberately as opposed to just movies or content. So as head of strategy for Amazon Studios,

how do you think AI, if you will, is going to sort of crawl up the stack of Hollywood? Is it the existential threat that the WGA claimed it was and yet got no protections from it, as far as I can tell? Or do you think it's actual? Or is it a productivity tool that potentially lowers costs? And some media companies adapt, others don't. But on the whole, the media ecosystem stays robust and there are winners and losers. Or is it really going to start,

is it going to disrupt Hollywood? Is Hollywood the next Detroit at sort of the feet of AI? What are your thoughts here? And if you were still advising Amazon or a traditional studio, where do you think, how do they best defend or go on offense here in Leverage AI? Well, we have to keep in mind that one of the reasons I think that Hollywood has been more skeptical around generative AI is the lessons of the last few supposed waves. When you take a look at Netflix, Netflix in many ways, or streaming video, democratized video distribution and it changed the monetization, but it did nothing to alter the cost structure of production. It's one of the reasons why fans decry the fact that streaming has replicated the cable bundle, but it's more expensive. Well, of course, we haven't come up with any real innovations to the production cost. We produce

more expensively than ever before, in part due to the competitive intensity brought about by the democratization of distribution. You go back 15 years earlier, you get to VHS, a new channel, a new monetization scheme, but it didn't, again, change how we produced. Digital film and the advent of computer-generated imagery in the early 90s, in many ways, was expected to change production and democratize it by eliminating sound stages. But the cost of digital cameras at the time, the cost of CGI, actually elevated budgets to the point in which anyone who wants to have an epic or a spectacle, the films that do best in movie theaters, requires often, not exclusively, but often hundreds of millions, if not more. Hollywood is therefore kind of attuned to this idea of the new disruptive technology

doesn't change production, therefore maintains the merits of project financing, of distribution slates to diversify risk of sound stages. And in many ways, the actual cost of running generative AI systems right now, plus the importance of distribution that they've spent 15 years trying to build up through streaming, has led many to believe that, yes, it's a disruptive force. It is more likely than not going to affect below-the-line workers and supporting systems. But many believe that, especially with the law on their side, that it's still going to shake out mostly for them. I'm skeptical because I think that we have never before seen an actual massive disruptive force on the production side, and one that in classic disruption theory suggests that many of their existing resources become at best distractions and at worst cumbersome cost hurdles for them and so this is to say it's a little bit difficult to predict

the outcomes but i do think that everything that we expected from youtube that we didn't get which is to say a massive volume of independent creatives that have never touched nor gone through a traditional pipeline and yet are producing content that doesn't look like a $300 million Marvel film, but looks like a $40 or $50 million Marvel film, only it is more easily updated and edited, changed, customized, frankly transplanted and re-imported into an immersive environment, into a storybook form, that's going to be really hard to slow. And crucially, because Hollywood will no longer own the distribution levers, can't stymie either. The only place I would take exception is that I do think on the production side,

there has been a globalization, right? They've brought down some production or the RRI has gone up by producing stuff in South Korea and Spain. I think Netflix has done a pretty good job with that. Would you agree with that? Depends on how you want to define that. Do I think that Netflix has done an outstanding job in Spain and South Korea, in Australia? Absolutely. I think investors often overlooked Netflix's advantages because they compared it to HBO domestically, a business that had 50 years of investment competing against one that had a few years of investment, without appreciating that in many foreign territories, Netflix is HBO, not just to the consumers, but to talent, to production expertise. They own sound stages. They pre-booked sound stages that they financed the construction of

for years. At the same point, there isn't much evidence of the routine repeatability, let alone efficient production investment of those foreign internationals hitting over here. We have Squid Game, but Squid Game was now three plus years ago. We had Money Heist before that, a title that they didn't actually produce but purchased the license to. I think that is to say, Scott, I think that by American standards, where we're used to $5 to $15 million per hour, Netflix has excelled in diversifying their international production to the $2 to $5 million budget level when servicing those regional customers. But I haven't yet seen so much evidence that they've been able to substitute the American diet for high cost scripted shows, which much

lower, more efficient international scripted shows on balance. We'll be right back. It feels as if we've written about this at the kind of the streaming wars if you will are just this great case study in economics over investment because the markets are willing to replace or say we'll be on growth over profit so there's a massive over investment and now we're going through a shakeout cost cutting consolidation as you look at the landscape here of all the different streamers, who do you think the winners and losers are? Who are the consolidators and the consolidate remarkable how profitable that category was. People talk about pay TV, but I think it's generally underappreciated that if you can believe it, pay TV or network television distribution was a, 15% EBITDA margin. Network distribution was around 37 to 40% in 2020. That compared with renewables, nicotine, and oil and gas. Why? Because the amortization that you netted against your operating income was enormous because you had to build pipelines. Any system that said just shifting

from a top decile to a top quartile category meant that you were going to lose roughly one third of your profit margins, that you probably had two times the cost structure that you needed. And that's before accounting for the fact that your two biggest competitors non-traditionally are Amazon and Apple, which need not a dollar of direct margin. And you're competing against a business, Netflix, that said, we don't care for 20 years. There is no way, there has never been a way to run away from that system. And so all of the outcomes that I think have long been predicted seem as inevitable now. There's too many players,

the cost structures remain too high, and that's before you even take into account the aforementioned generative AI displacement. There's nothing the average American still in 2024 does with their free time more than watch TV. And I don't think that that share of time is even going to last as a result of video gaming, social media, and other practices that we see from the younger generation. And so we're going to see more companies go belly up. We're going to see more companies merge and, like Paramount and Viacom, find out that despite their doubled size, they're going to end up half the size they were. So take it a step further. I'll put this out there. Time Warner survives, Disney survives, Netflix survives. Other than that, I feel like

all bets are off. What are your thoughts? How do you mean survive? Like as going concerns or direct to consumer business? My sense is they're all recognizing, even the deep pockets of Amazon and Apple realize they don't have the appetite to make the requisite investments to be kind of standalone big competitors here. And everyone's looking for a dance partner or to get acquired. It just feels like the whole there just isn't enough room for all of these players. And what I'm putting to you is who do you think gets acquired sooner rather than later? Might we see one of them actually get unplugged? Well, look, I think it remains very hard to imagine what the independent future of Alliance

Gate or Stars will be, especially as a separated entity. They kind of have all of the drawbacks they had as a combined entity, plus none of the narrative and none of the ability to at least tap into two segments of the value chain. AMC has been looking for a dance partner for 15 years, clearly overestimated its value over and over to the point in which there's no dance partner to find for them. But the more important aspect is, look, if you take a look at WBD, these days it's circling less than $7 per share. It's a collection of assets that seem increasingly out of whack. You have the Turner Sports regime that's apparently about to lose its NBA assets. You have CNN,

you have HBO, which as of now is decoupling further still from the rest of Macs. I think it's important to recognize that under current leadership, WBD has actually sold off most of their plausible growth story. They've renewed a deep into 2030s distribution agreement with Bell Canada. They're apparently renewing their Sky distribution deal in Germany, in Italy, in France. They've renewed a South Korean distribution agreement, an Australian distribution agreement with Stan. At the point in which you're saying we're going to downsize our domestic business in HBO, we're going to start licensing all of our content to Netflix and anyone else who will buy it. In all of the international territories that have the highest streaming penetration,

we're going to retreat and license for the next decade to come, and then you're giving up your most valuable rights on the Turner side, CNN has no strategic adjacency, and the stock price has lost 75% since it debuted only two and a half years ago, it's very hard to imagine that that current structure can endure. And that's not even talking about the video game side of the business. And Matthew, before we go here, we have a lot of young people who listen to the pod and are working hard, trying to establish currency in a professional marketplace. And I think anybody that looks at your background and what you've achieved and the seat you've sort of created for yourself, and I think that is a really cool profession. Can you give us a little bit of the backstory about how you got to where you are now and any advice you might have for young men and women who are looking to establish what feels, smells, and looks like a really cool, well-compensated career?

So I'd say two things. Growing up in the early 90s, I was a relentless user of these really hard-to-use systems. I was a big pirate in the 90s. I was on IRC chats. I was using MS-DOS. The use of those products often provided, I think, an intuitive understanding of what was around the corner. Why? Because often the systems that, especially Hollywood, starts to bring, feel regressive at the time,

right? I'll give you an example. Like TV Everywhere is one of the biggest disasters that Hollywood has ever invested. Do you remember Ultraviolet, Scott? Yeah. And it was one of those things where if you had been a pirate, and I don't endorse piracy, I'm talking about the products of using these experimental technologies, you all of a sudden realize that what you were being asked to use was a woefully inadequate version of the already kludgy systems that you were doing 10, 15 years ago. And then when that's put in parallel with a product like Netflix that, yes, came from an independent company that didn't own its destiny, that was licensing content,

that had all of its flaws, that didn't have live sports and live news, it provided me with a much clearer understanding of this is at minimum a better model and at maximum a better model that is competing with companies that don't even know what a good model looks like and are to some extent ignorant of what consumers are already doing. And so I do think that using those technologies constantly, which in the case of crypto means going through truly terrible systems and often losing your money as a result of it, not saying that you should speculatively invest, there's no substitute for that. You cannot learn it by reading blog posts and going on Twitter. The second thing is, I would say I've done a good job in my career of constantly switching out of a category where I believe the big strategic problems have solved and then focusing on the categories where you only have

hard and sometimes intractable questions. In the case of the metaverse or VR, that means going after a field that you're going to get wrong a lot of the time. It's part of the reason why I've updated this book. It's a 70% remake from only two and a half years ago. You can't think of the metaverse the same way in 2024 after the Vision Pro, after the crypto crash and resurgence, and after the advent of AI. But if you can be relatively unsentimental about going for, in my case, streaming video was really hard in 2013. You didn't know who to hire. You didn't know the business model. It was darn hard to get an app on a Samsung TV, any television. But by 2017, 2018, we essentially figured it out, which is why 2019, we saw every single service

on earth come to market. I pivoted out to an uncertain category. And when you have the opportunity to learn, go to labs, talk to entrepreneurs on Slack day in and day out about something no one has figured out yet, but most people think is about to become significant, you end up with a multi-year advantage that you can continue to compound for. Matthew Ball is the CEO of Appealian, a diversified holding company that makes angel investments, provides advisory services, and produces television, films, and video games. He's also a venture partner at Maker's Fund, senior advisor to KKR, senior advisor to McKinsey and Company, and sits on the board of numerous startups. The fully revised and updated edition of his book, The Metaverse, is out now. He joins us from Midtown Manhattan. Matthew, you're just, you're one of these guys. You remind me a little bit of Josh Wolfe. I don't know if you know him from Lux Capital. I know Josh. He's the best. But I feel like I'm working with a 286 or a 386 ship, and the way you guys are able to process

and distill information is just, it's not only impressive, it's really inspiring. Appreciate you sharing our thoughts with our audience and congratulations on building such an impressive career for yourself. Thank you. That's very kind. Algebra of Happiness. I was invited to speak at something called White Dudes for Harris, which was a Zoom call that garnered, get this, 160,000 people and raised about $4 million. So I got to speak for two or three minutes. And my favorite thing is I got to speak after the governor of Minnesota and before Luke Skywalker, that's right, Mark Hamill, spoke after me. Initially, I thought, I'm just so sick of identity politics. I don't want to be associated with an event that identifies me based on my beigeness and the fact I have outdoor

plumbing. But I signed up for it because, and of course, all the Trumpers weighed in and said, if we did this, we'd be accused of being racist and bigoted and blah, blah, blah. I think you have to take gestures with the intent that they're given. And this was, let's be honest, this was non-whites and women have absolutely been ignited, enthralled, motivated, inspired by the prospect of President Harris. I love that. I think it's been very difficult not to get swept up in Kamalot, if you will. And regardless, I want to be clear, she was not my chosen candidate, but neither was Bill Clinton. I was supporting Michael Dukakis. Remember him? But I'm all in. I think she's a competent person, and I think the person she's running against is not a great role model for young men, but that's not what I'm here to talk about. Vice President Harris has received a lot of grief from Vice President nominee J.D. Vance for not having kids. And that's just not true. Vice President Harris is a stepmom, if you will, to two kids. And my stepmother just played such a positive role in my life. My dad's been married and divorced four times.

He had a daughter by his third marriage, but his wife, Linda, his third marriage, was the first person to spoil me. Do you remember that? The first person, for most people, it's their grandparents, right? And my grandparents were not around. So some background, Linda had been told

that she could never have her own children. And so when this little, you know, this eight-year-old in Levi's corduroys and an OP shirt and missing his two front teeth showed up, she was just in love, like moment one, and she'd see me eyeing the remote control P-51 plane and say, well, what about this? Even though I was too embarrassed to ask because it looked expensive. The first person who spoils you, you just love the rest of your life. Anyways, my stepmom, Linda, spoiled me. She was also really good in terms of encouraging my father to be more involved in my life. She and I spent a lot of time together because my dad was on the road, so I would go out to my father's every other weekend and basically hang out with Linda. And she was such a positive role model for me and was such a loving person. The reason I bring this up is I think step-parents are very

much underrated and overlooked, including the vice president. I think that it is an especially strong signal of your humanity, your generosity, and generally speaking, your capacity to love when you do what most step-parents do, and that is love those children like they're your own. This episode was produced by Caroline Shagrin. Jennifer Sanchez is our associate producer, and Drew Burrows is our technical director. Thank you for listening to the Prop G Pod from the Vox Media Podcast Network. We will catch you on Saturday for No Mercy, No Malice, as read by George Hahn. And please follow our Prop G Markets Pod wherever you get your pods for new episodes every Monday and Thursday.